Tuesday, November 08, 2011

Adam Smith Wrote for the Ruling Elite

Competition is not the foundation of the free market. The foundation of the free market is freedom.

In a free society, people seek ways to make the best use of their time and resources in a community environment. As each person strives to make the most of their personal resources people end up competing in their ability to cooperate.

In the "Wealth of Nations," played up the role of competition in the market and diverted attention from the role of cooperation. For example he used complex terms like the division of labor to explain how people cooperated.

Adam Smith wrote "The Wealth of Nations" for the ruling elite of England in 1770. As the title of the book suggests, Smith argued that the king should allow free market reforms because it would help England in its never ending war with France.

Smith wrote for the English ruling elite.

The ruling elite love to see the people pitted in competition against each other. Rulers have used contrived competitions since antiquity.

In ancient Rome, they were actually throwing people into pits (coliseums) to engage in death battles. The ruling elite love competition.

Smith knew his audience. He played up the role competition plays in markets and played down the role of cooperation.

Smith used bizarre terms like "The Division of Labor" to describe cooperation and really drove the point that merchants were always competing for market share.

Please note. The business that is best at helping customers achieve their goals wins market share.

The beauty of the free market is that people compete in their ability to cooperate with others.

In contrast, the derived competitions of the ancient regime tended to be base and destructive.

Sadly, the enemies of the free market have been able to take Adam Smith and use the fact that he wrote for the ruling elite to claim that the free market is simply about building a new elite.

This tact is absurd. Imagine if a physicist wrote a childrens book on Quantum Mechanics. Would this mean that Quantum Mechanics is just for children?

This is the tact taken by Karl Marx in "Das Kapital" (the foundation of modern capitalism).

Marx holds that since Smith wrote "The Wealth of Nations" for the ruling elite, that capitalism exists solely for the benefit of the ruling elite.

Marx takes the fact that Smith overemphasized competition to frame the free market as a dystopia in businesses were pitted against each other in a death struggle in which one must dominate or perish.

When one builds a market in which dominating the competition becomes the primary focus of existence, then the market becomes a base, nasty system littlered with carcasses.

The philosophy is self-fullfilling. When business leaders are taught that they must dominate or perish, then they are apt to engage in anti-market activities.

Treating competition as if it were the foundation of the free market leads to people to engage in activities that undermine the market.

People who are taught the Marxian view of economics tend to engage in anti-market activities that undermine themselves and the people around them.

This is the fault of the Marxian view of economics. It is not the fault of freedom.

Competition is neither the foundation or, nor is it unique to the free market.

Freedom is the foundation of the free market.

When people are free to choose, they choose to form mutually beneficial associations. As time and resources are limited, free people begin to engage in the paradoxical activity of competing in their ability to cooperate.

Cooperation plays a bigger role in the market than competition.

What I learned in school about markets and competition was wrong. By teaching the Marxian view of the markets, our progressive schools are engineering the destruction of our freedom.